Greater Kuala Lumpur MarketView Q2 2013 CBRE Global Research and Consulting GDP NET RETAIL IPI CONSUMER 4.3% (Q2 2013) EXPORTS TRADE 3.7% (Q2 2013) CONFIDENCE INCREASED ECONOMIC ACTIVITY, DRIVEN BY DOMESTIC CONSUMPTION, DRIVES SECOND QUARTER GDP GROWTH Quick stats ChartQ2 2013 1: Growth in GDP and Domestic Demand GDP and Q2 y-o-y Domestic Demand: 2013 Real GDP Growth 4.3% Private Consumption 7.2% Public Consumption 11.1% CPI 1.8% Distributive Q2 2013 q-o-q y-o-y Trade: Wholesale RM109,2 Trade 85 million Retail RM75,69 Trade 9 million Net -41.6% Exports Exports RM169,4 (Q1) 66 million Source: [Bank Negara Malaysia (BNM)] Imports RM152,9 Malaysia’s economy grew Domestic demand expected to (Q1) 13 million stronger in Q2 2013 outpace Malaysia’s GDP Monetary and Q2 y-o-y Malaysia’s GDP expanded slightly by Amidst a challenging external Banking: 2013 4.3% (Q1 2013: 4.1%) in the second environment, domestic demand is Base Lending Rate 6.53% quarter of the year, but decreased expected to continue being the driver year-on-year (Q2 2012: 5.6%). of Malaysia’s economic growth, with Loans Approved This is mostly attributable to pre- growth in domestic demand RM31,1 (Residential projected to outpace overall GDP 87 election government spending and Properties) an increase in economic activity after growth in the second half of 2013. million Exchange Rate the May 2013 polls, although the Domestic demand growth will be RM1.00 to US$ 0.3228 figure was still below economists’ supported by the implementation of (e.o.p.) consensus expectations of 4.9%. projects under the various economic It should be noted that Malaysia’s transformation programmes. In addition, a rise in consumerism and current account surplus fell sharply to RM2.6 billion in the second favourable labour market conditions quarter (Q1 2013: 8.7 billion) mainly are expected to continue supporting due to declining exports and strong consumer spending. imports. The government has since At the same time, escalating levels of announced its intention to take household debt fuelling this demand certain steps, including sequencing raise concerns. Nevertheless, a large investments that have high more encouraging outlook is import content, increasing Malaysia’s provided by positive consumer and competitiveness and diversifying business sentiment. export markets, to reverse this As at June 2013, inflation was stable situation. at 1.8% (May: 1.8%) after an As a result of these external increase from 1.7% in April 2013. concerns, the central bank cut its forecast for full-year growth to 4.5%- 5.0% from 5.0%-6.0%. © 2013, CBRE Malaysia (333510P) (VE(1)0232) Q2 2013 2013Q2 OFFICE FLIGHT TO QUALITY CONTINUES Greater Kuala Lumpur | GreaterLumpur Kuala Continued leasing activity provides encouragement Chart 2: Total Greater KL Supply The Kuala Lumpur City (Golden Triangle + CBD) office market showed encouraging signs of life during the review quarter as vacancy rates decreased to 12.7% (13.2% as at Q1), on the back of some notable leasing activity. Continued evidence of the ongoing flight to quality came in the form of an oil and gas major leasing over 200,000 sq ft of office space in Integra Tower, the MarketView recently completed prime office building within MGPA’s Intermark integrated development. Overall, there was no change in average gross asking and passing rents for selected Grade A office space in the city, at RM8.10 psf and RM7.10 psf respectively. Long-awaited Shell and CIMB buildings ready Source: CBRE Research As at Q2 2013, the total supply of office space in Greater KL stands at about 91.1 million sq ft, a sizeable change Chart 3: Breakdown of KL Supply by Area from Q1’s 89.2 million sq ft and up 5% y-o-y. The second quarter of 2013 witnessed the completion of 4 developments, all located outside KL City: Menara D’Damansara (253,000 sq ft of NLA), Plaza 33, i.e. the 2nd phase of Jaya 33 (530,840 sq ft), and Menara CIMB (609,000 sq ft) as well as Menara Shell (538,617 sq ft) located in KL Sentral. There were no office completions in KL City during the quarter and none are expected until 2014; overall, large- format, high-quality city-centre office completions between now and 2017, when the first phase of TRX is scheduled to be completed, appear limited. At least 2.53 million square feet of office space (in 9 buildings) will be completed during the second half of 2013. 3 buildings are located in Petaling Jaya (at least 750,000 q ft of NLA), 2 in Shah Alam (475,000 sq ft), and Source: CBRE Research 4 in suburban areas of Kuala Lumpur: Commerce One on Old Klang Road (201,620 sq ft), Menara LGB in TTDI Chart 4: Future Supply by Location (414,119 sq ft), Sentral Vista (250,000 sq ft) and 1 Sentrum (440,000 sq ft) in KL Sentral/Brickfields; hence, supply in suburban areas will represent 50% of all the completed projects in Greater KL over the next 6 months. The significant amount of supply completions in KL Sentral since 2012 has driven up vacancy rates in surburban areas, and we expect that it will take some time for this new supply to be absorbed. 2014 supply to exceed 2013’s Our latest figures show that as much as 6.27 million 2 square feet of new office space will be completed in Greater KL in 2014, although a considerable amount of Source: CBRE Research this supply is located in strata-title or secondary buildings. Nevertheless, the market is set to remain poised in favour of tenants for the near future. © 2013, CBRE Malaysia (333510P) (VE(1)0232) OFFICE 2013Q2 INCREASED LEASING ACTIVITY OFFERS ENCOURAGEMENT Greater Kuala Lumpur | GreaterLumpur Kuala Chart 5: Kuala Lumpur Vacancy Rates Market defined by activity in suburban areas Although vacancy rates increased in suburban areas, those in Outer Klang Valley (i.e. Selangor) showed improvement from 19.4% in Q1 2013 to 17.7% in Q2 2013. Despite this and the earlier-mentioned leasing activity in the city centre, however, the overall Greater KL vacancy rate registered 15.0%, up from 14.4% last quarter. MarketView Integra Tower and Menara LGB benefitting from large lettings Notable city-centre transactions during the quarter included the aforementioned letting in Integra Tower, a move we understand will be phased throughout the rest of the year, as well as the relocation of Fuji Xerox into Menara Binjai, and LHDN taking up 100,000 sq ft in Source: CBRE Research Menara Olympia on Jalan Raja Chulan. The ongoing ‘flight-to-quality’ continues with Deloitte Chart 6: Grade A Passing Rents having announced their move out of Damansara Uptown 1 to relocate to Menara LGB in early 2014. The willingness of large corporate occupiers, especially MNCs, to relocate to newer buildings with higher specifications has been evident since at least 2010, when companies could be seen leaving older buildings along the Jalan Sultan Ismail strip for newer, higher quality completions around the KLCC precinct, such as GTower and Vista Tower. Malton’s acquisition of Pusat Bandar Damansara land is resolved, as Petaling Jaya’s V Square is included as part of settlement Among the 5 investment transactions recorded during Q2 2013, the most significant involved the disposal of a Source: CBRE Research 20-storey commercial office building identified as Block 1 of V Square, along with 964 car park bays, in Petaling Chart 7: Grade A Capital Values Jaya, sold to Bukit Damansara Development (indirectly owned by Johor Corp.) by Khuan Choo Property Management (a subsidiary of Malton Berhad). This transaction was directly related to the acquisition of 9.6 acres of prime land (plus existing buildings) by IESB, in majority owned by the major shareholder of Malton (Pavilion group), Datuk Desmond Lim. The complex transaction, which has a reported value of RM700 million, consists of RM500 million cash plus 266,667 sq ft of office space within the redeveloped Pusat Bandar Damansara. The transfer of V Square was undertaken in exchange for a portion of this in-kind office space, with the remaining 80,000 sq ft to be transferred once the PBD redevelopment is complete. 3 This resolution brings to an end a three-year legal battle, Source: CBRE Research and we understand the PBD redevelopment will include at least 2 office and 3 residential towers and a suburban retail mall. © 2013, CBRE Malaysia (333510P) (VE(1)0232) Q2 2013 2013Q2 RETAIL FOREIGN RETAILERS CONTINUE TO ENTER THE MARKET Greater Kuala Lumpur | GreaterLumpur Kuala Retail Supply Chart 8: Retail Supply The total retail supply in Greater KL remained at 48.33 million sq ft as of 2Q 2013, as there were new completions during the period. Notable malls due to be completed this year include Cheras Sentral Shopping Centre (developed 60.00 by Mayland Properties), which is approximately 50% let and 50.00 due to open in November this year, Nu Sentral (a MRCB and PNB Joint Venture), about 70% pre-let and due to open 40.00 30.00 end-2013/ early-2014, and Encorp Strand Mall (developed MarketView by Encorp), which was due to open in June but has now 20.00 been pushed back to end-2013. 10.00 Total Total NLA (million ft) sq Looking further ahead, the two largest malls due to come 0.00 onto the market in the near future include IOI City Mall 2007 2008 2009 2010 2011 2012 (1.35 million sq ft) and Empire City Mall (1.8 million sq ft).